Buoyed by GDP growth oftenexceeding 3 percent annuallysince 2004, Brazil is currentlyfrantically building new infrastructu...
Two Main Optionsforeign newcomers have two mainoptions: (i) establish a manufacturingfacility in Brazil; or (ii) forge all...
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Article scandinavian oil & gas magazine nuts and bolts offshore brazil - march 2012


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Article on Offshore Industry in Brazil - March 2012

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Article scandinavian oil & gas magazine nuts and bolts offshore brazil - march 2012

  1. 1. Buoyed by GDP growth oftenexceeding 3 percent annuallysince 2004, Brazil is currentlyfrantically building new infrastructureto develop its vast reserves of natu-ral resources in the so-called pre-saltcluster along the Brazilian coast.The cluster’s oil has been found be-low water as deep as 3,000m and ad-ditionally as much as 7,000m belowthe seabed beneath a layer of salt. Itthe past 20 years”, according to WoodMackenzie consultants.Additionally, it is important to highlightthat Petrobras, the state-controlled oilgiant of Brazil, will itself be investinga whopping US$127.5 billion through2015 solely in exploration and produc-tion activities.A Gigantic Shopping ListAs programmed, Petrobras is aboutto embark on a spending spree froma gigantic shopping list that rangesfrom wellheads and hydraulic pumpsto drilling packages and other criticalcomponents. Petrobras is also pro-jecting future bidding procedures forchartering all types of vessels, fromdrilling rigs and FPSO to pipe-layingvessels and tug boats.In view of this thriving scenario, Bra-zil is poised to become a gold minefor suppliers and service providersin the worldwide offshore petroleumindustry. But there is one catch. Asannounced by local authorities andwill undoubtedly be required to meetan ever-growing “local content” per-centage.Local content requirements will un-doubtedly climb, thereby forcing inter-ested international suppliers to set upand run Brazilian subsidiaries in orderto participate in the massive oil rev-pre-salt region.Furthermore, registry in Petrobrasvendor’s list (validated by receiving“CRCC”) will certainly be indispens-able for companies wanting to par-ticipate in the pre-salt bonanza. Thismeans that players desiring a pieceof the pre-salt pie will have to pull to-adapt to Petrobras quality require-ments.The Brazilian oil and gas industry is skyrocketing, fuelled by huge offshore discoveries in recentyears. Understandably, escalating local content has become a major priority for Petrobrasprocurement. For those who are thinking of doing business in Brazil, it’swisetoask: What are thepossibilities for local partnerships or local manufacturing capabilities?BY HELLER REDO BARROSO AND MARCOS MACEDOThe nuts and bolts of doingbusiness in the Brazilian oil &gas and offshore industries
  2. 2. Two Main Optionsforeign newcomers have two mainoptions: (i) establish a manufacturingfacility in Brazil; or (ii) forge allianceswith local partners. As we have no-ticed, some major international majoroffshore contractors and suppliers arealready jump starting their competitiveposition by establishing operationaland manufacturing facilities in Brazil.Nonetheless, due to major interna-tional players’ lack of local installedcapacity in the offshore petroleum in-dustry, bidding and direct negotiationinvitations are currently going mostlyto Brazilian contractors. In turn, thelocal companies will seek technologyand project managers from abroad.That is why some international playersare now seeking to secure allianceswith important local players, most no-tably in the EPC sector.Summarizing the upsides of local part-nerships with recognized Braziliancompanies in the oil and gas market,we can say that: a foreign newcomer:(i) would be most likely invited to par-ticipate in bids by coat-tailing onto a lo-cal partner’s consolidated reputation;(ii) immediatly, have fewer problems inachieving local content requirementsin their contracts;(iii) would not face the common red-tape problems that newcomers usuallyexperience in pre-operational or pre-bid phases; and(iv) share the local partner’s experi-ence and use its manufacturing capa-bilities and plants.A Huge OpportunityMost of these Brazilian contractors areoffshore petroleum industry and some-what “illiterate” in the high-tech endof it. So they are quite dependent onassociations with international com-panies to successfully participate inpre-salt E&P activities. This is a hugeopportunity for international suppliersand contractors to begin opening thedoor into Brazil: start with well-regard-ed local associations.By becoming established in Brazil,foreign companies may eventually bedirectly invited to participate in auc-tions where high national content isrequired, allowing them to competewith “native” Brazilian contractors.But the early birds are already chas-ing the worms. Right now, new portsand shipyards are under construction.Every major global shipyard is alreadyinvolved in Brazil, negotiating the con-struction of their own yards here, all ofthem in association with the biggestBrazilian conglomerates.Be Amongt he HottestDespite these challenges, the Brazil-ian pre-salt region represents one ofthe hottest business opportunities forE&P services and goods providersthroughout the world. Newcomers toBrazil’s oil and gas marketplace areusually dismayed by what seems to bean overly-complex, heavily-regulated,and bureaucracy-prone business andlegal system. Companies worry aboutcorruption and about securing theirassets against unlawful seizure or na-tionalization. However, in today’s Bra-zil, these are somewhat far-fetchedconcerns.But the clock is tickling, and thosecompanies prepared to move quicklyto establish local manufacturing ca-pacity in Brazil and forge local strategicassociations will secure themselves abig head start in the run for black gold.AUTHORSHeller Redo Barroso isthe founding partner ofHeller Redo Barroso &Associates...hrb@hrblaw.com.brMarcos Macedo is anassociate at Heller RedoBarroso & Associates...macedo@hrblaw.com.brHeller Redo Barroso & Associates. is aspecialized in the Oil and Gas, Power,Shipping, and Offshore PetroleumIndustry.www.hrblaw.com.br